HOW DO LEGAL AND REGULATORY FRAMEWORKS OF LIBERALIZED ELECTRICITY MARKETS INFLUENCE THE PROMOTION OF RENEWABLE ENERGY? LESSONS FOR AUSTRALIA FROM INTERNATIONAL CASE STUDIES Anne Kallies (ORCID iD 0000-0003-4090-2159) Submitted in total fulfilment of the requirements of the degree of Doctor of Philosophy June 2015 Melbourne Law School The University of Melbourne Produced on archival quality paper ABSTRACT The decarbonization of the stationary energy sector is crucial for reducing greenhouse gas emissions in Australia and across the world. Renewable energy as alternative means of generating electricity provides a key component of the transition to a low carbon society. Yet, successful transition depends not only on the development of suitable renewable technology, but also on the ability of regulatory frameworks to support and adopt this technology. In Australia, Germany and the United Kingdom, electricity provision is governed by regulatory frameworks, which provides for competitive retail and wholesale electricity markets and regulated electricity networks. This thesis critically examines the capacity of these regulatory frameworks to integrate renewable energy. Drawing on systems conceptions of electricity and ideas of regulatory space, this thesis comparatively assesses the role of law in Australia, UK and Germany in creating and sustaining market solutions for electricity supply, arguing that these systems have operated to the detriment of renewable energy. Legal frameworks have co-developed and therefore ‘fit in’ with fossil fuel-based infrastructure. Hence existing legal frameworks for electricity provision lock-in out-dated generation profiles and institutional frameworks, thereby limiting the uptake of renewable energy and retarding transition to low carbon energy systems. The thesis contends that overcoming this lock-in to promote the transition to a renewable energy-based electricity sector requires targeted regulatory reform. Drawing on experiences from Germany and the United Kingdom, it finds that reforms need to include the integration of sustainability concerns into the legal frameworks of the electricity market. It also requires network and market regulation, which provide specifically for the different requirements of renewable energy. Finally, reforms to introduce whole-of-system planning into regulatory frameworks for the electricity system will be necessary. It is shown that because liberalized electricity markets inherently further existing generation and network profiles, they will not achieve these changes without governmental intervention. The thesis argues that reforms will require a reengagement of the state in directing and planning the electricity system, in other words, choosing a new path. While the re-conception of a decarbonized Australian electricity system can take different forms, the thesis provides a foundation for considering where legal reform will be necessary to support this process. DECLARATION This is to certify that: (i) the thesis comprises only my original work towards the degree of Doctor of Philosophy, except where indicated in the Preface; (ii) due acknowledgement has been made in the text to all other material used; and (iii) the thesis is less than 100,000 words in length, exclusive of the front matter, diagrams, tables, maps, bibliographies and appendices. Signed: PREFACE Aspects of this thesis have previously been published in the journal article and book chapter listed below: Lee Godden and Anne Kallies, ‘Electricity Network Development: New Challenges for Australia’ in Marta Roggenkamp et al, Energy Networks and the Law (OUP, 2012) 292 (50 per cent contribution of each author); Anne Kallies, ‘The impact of electricity market design on access to the grid and transmission planning for renewable energy: Can overseas examples provide guidance’ (2011) 2 Renewable Energy Law and Policy Review 147. ACKNOWLEDGEMENTS I would like to thank both of my supervisors, Lee Godden and Jacqueline Peel, for their support, encouragement and their patience. They have not only provided excellent supervision, but also invaluable opportunities for presenting and publishing my work. My research has been greatly influenced by participating in an Interdisciplinary Research Project on Solar Power and Regulation at the University of Melbourne. Many thanks to my fellow team members - Fiona Haines of the School of Social and Political Sciences, Roger Dargaville and Dylan McConnell of the Melbourne Energy Institute and Peter Christoff of the School of Land and Environment for many great discussions. A special thanks also goes to Lisa Caripis and Stephanie Niall, my colleagues in the Melbourne Law School Centre for Resources, Energy and Environmental Law. Both were often the first port of call for testing out ideas and reading and commenting on parts of the thesis – their contribution has been invaluable. A special thank you needs to go to my friend Catherine Smith for making time to proofread the final thesis. Finally, I am very grateful to my husband and my children for bearing with me through the long process of finalizing this thesis. TABLE OF CONTENTS Chapter I: Introduction ................................................................................................ 1 I Background ................................................................................................................. 5 A The Australian Challenge ................................................................................................... 5 B The Legal Environment for Renewable Energy in Australia .............................................. 6 C Legislative Change in Other Jurisdictions .......................................................................... 9 II Thesis Contention and Approach ............................................................................ 10 III Beyond Existing Research: A New Theoretical Approach ..................................... 12 A Existing Research and Gaps ............................................................................................. 12 B A New Analytical Framework to Address the Role of Law in Liberalized Electricity Markets ................................................................................................................................ 14 1 The Standard Liberal Market Model ...................................................................................... 15 2 Alternative Models and the Role of Law ............................................................................... 17 3 Regulatory Space and the Role of Law in Electricity Markets .............................................. 17 C Comparative Legal Research ............................................................................................ 19 D Significance of the Thesis .................................................................................................. 22 E Limits of the Analysis ........................................................................................................ 23 IV Chapter Overview .................................................................................................. 25 Chapter 2: The Role of Law in Electricity Markets: Theory and Methodology ......... 29 I Systems Conceptions and the Electricity Sector ....................................................... 31 A The Theory of Socio-Technical Systems ........................................................................... 32 B Implications of Systems Perspectives ................................................................................ 35 C Characteristics of the Electricity System .......................................................................... 38 1 Technical Elements ................................................................................................................ 38 2 Norms of the Electricity System: The Essential Service Character of Electricity Supply ..... 42 II Evolution of Legal and Regulatory Framework of the Electricity System: Market Reform and Theoretical Perspectives .......................................................................... 44 A Electricity Market Reform: From Integrated Utilities to a Liberalized Market .............. 45 B The Wider Theory Context: Neoliberalism and the Regulatory State .............................. 49 1 The Regulatory State .............................................................................................................. 50 2 Conceptualizing Regulation in Market Frameworks .............................................................. 51 3 The Public-Private Divide and Markets as Regulatory Instruments ...................................... 52 III The Role of Law in the Electricity Market: Comparing Economic Theory and Systems Conceptions ................................................................................................... 54 A The Standard Liberal Market Model and the Role of Law .............................................. 57 B Systems Conceptions as an Alternative ............................................................................. 61 IV Using Systems Conceptions of Electricity to Clarify the Role of Law in Market Frameworks ................................................................................................................ 63 A Regulatory Space and the Role of Law ............................................................................. 64 B Liberalized Electricity Markets and Regulatory Space ...................................................